Exam 2 Ch. 8

When MC is below ATC & (AVC)

ATC is falling (AVC)

when the marginal cost is less than the ATC, ATC must be

decreasing

Any cost that remains unchanged as output changes represents a firm's

fixed cost

What are examples of implicit costs?

forgone salary and interest

Economics of sale

when a firm's long run average cots (LARC) fall as it increases quantity of output produced ex. -technology supports greater output (production) without requiring additional inputs (labor) -specialization of work -leverage to purchase raw materials in greater quantities & received a discount

When MPL < APL

average will decrease

When MPL > APL

average will increase

Positive technological change is defined as

being able to produce more output using the same inputs & being able to produce the same output using fewer inputs

Average cost

relevant cost / quantity output produced

When the MPL rises

the MC of production falls

A short-run production function holds constant

the amount of capital

It the amount of time that separates the short run from the long run the same for every firm?

No

Variable inputs

(L) Production inputs that the firm can adjust in the short run to meet changes in demand for their output. Often this is labor and/or raw materials

Outputs

(Q) goods and services of value to households

In​ economics, the best definition of technology is A. the speed of communication. B. the development of new products. C. the process a firm uses to turn inputs into outputs. D. the process a firm uses to price output. E. the sophistication of the equipment enjoyed by consumers.

C. the process a firm uses to turn inputs into outputs.

What is the difference between the short run and the long run?

In the short run, at least one of a firm's inputs are fixed, while in long run, a firm is able to vary all its inputs and adopt new technology

Why do the marginal product of labor and the average product of labor curves have the shapes illustrated in the​ graph?

The MPL initially increases due to specialization and then decreases due to diminishing returns & whenever the MPL is > APL, it pulls the APL up.

Explicit cost

a cost that involves spending money

which are example of a firm experiencing positive technological change? A firm is able to cut each​ worker's wage rate by 10 percent and still produce the same level of output. (is/is not) This ________ an example of positive technological change. b. A training program makes a​ firm's workers more productive. This _______ an example of positive technological change. c. An exercise program makes a​ firm's workers more healthy and productive. This ________ an example of positive technological change. d. A firm cuts its workforce and is able to maintain its initial level of output. This _______ an example of positive technological change. e. A firm rearranges the layout of its factory and finds that by using its initial set of​ inputs, it can produce exactly as much as before. This _________ an example of positive technological change.

a. is not b. is c. is d. is e. is not

Which of the following is most likely to be a variable cost for a business firm? -rent on the office building -cost of shipping products -property taxes -interest on long-term outstanding bonds

cost of shipping products

Fixed costs

cost that remain constant. ex. of inputs with fixed costs include facilities, insurance, machinery FC = Q x P only short run, there are no FC in long run

Variable costs

costs that can vary (change). ex. of inputs with variable costs are workers (labor) and raw materials VC = QL x PL (L=labor/laborer) found in the short and long run

When the marginal product of labor is greater than the average product of labor, the APL must be

increasing

Which of the following is most likely to be a fixed cost for a farmer? -cost of seeds -cost of fertilizer -insurance premiums on property -wages paid to farm workers

insurance premiums on property

Marginal cost and marginal product of labor are

inverse of each other. As long as MPL is increasing, MC is decreasing

Minimum Efficient Scale

the level of output at which all economies of scale are exhausted

when the marginal product of labor is falling (or negative)

the marginal cost of production is rising and Q will start to decrease

Short run

the period of time during which at least one of a firm's inputs is fixed

marginal product of labor

(change in Q / change in L) the additional output for the incremental increase in labor (how much the "last worker" added to the total output)

Law of diminishing returns

at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

Which of the following are sometimes called accounting costs? -economic costs -implicit costs -total variable costs -explicit costs

explicit costs

What is a production function? A firm's production function is best described as: -a relationship between different inputs that the firm uses to produce a fixed amount of output -a relationship between total cost of production and the level of output -a relationship between amounts of outputs of different products the firm can produce with fixed amounts of inputs -illustrating the relationship between inputs and the maximum amounts of output that the firm can produce with these inputs

illustrating the relationship between inputs and the maximum amounts of output that the firm can produce with these inputs

The law of diminishing returns applies

in the short run

Total cost

the cost of all the inputs a firm uses in production

Marginal cost

the cost of producing one more unit of a good incremental cost to produce the last unit MC = change in TC / change in Q

Production function

the relationship between firms inputs and outputs

When MPL increases

the total output is increasing at an increasing rate

Average product of labor

the total output produced by a firm divided by the quantity of workers (total labor) Q/L

When MPL is decreasing and negative

total output decreases

When MPL is decreasing but still positive

total output increases but at a decreasing rate

Any cost that changes as output changes represents a firm's

variable cost

Which costs are affected by the level of output produced?

variable costs

When MC is above ATC & (AVC)

ATC is rising (AVC)

Constant Returns to Scale

LARC remain unchanged as a firm increases output

Why does the MPL increase and then decrease?

Marginal product initially increases due to specialization and then decreases due to the law of diminishing returns

Long-run average cost curve

a curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed

Implicit cost

a non-monetary opportunity cost (trade-off)

Diseconomies of scale

when firm's LARC rise as a firm increases output

Long run

the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant